Deputy Commissioner of Taxation v Nguyen

[2015] VCC 177

IN THE COUNTY COURT OF VICTORIA Revised
Not Restricted
Suitable for Publication

AT MELBOURNE

COMMERCIAL DIVISION

GENERAL CASES LIST

Case No. CI-14-01965

DEPUTY COMMISSIONER OF TAXATION	Plaintiff
v.
DICH NGUYEN	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	19 February 2015
DATE OF JUDGMENT:	19 February 2015 (revised 25 February 2015)
CASE MAY BE CITED AS:	Deputy Commissioner of Taxation v Nguyen
MEDIUM NEUTRAL CITATION:	[2015] VCC 177

REASONS FOR JUDGMENT

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Catchwords:              Practice and procedure – Summary judgment application – Taxation liability – Conclusiveness of assessment – Whether “maladministration” in the preparation of the assessment – Whether evidence of predisposition by officials conducting an audit that the transactions were a “sham” – Federal Commissioner of Taxation v Futuris Corp Ltd (2008) 82 ALJR 1177 followed.    

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms A. O'Brien	ATO Dispute Resolution
For the Defendant For the First third party For the Second third party	Mr J. Lim (solicitor)    Mr J Dunne (solicitor) Mr J Katsanos (solicitor)	L & T Associates  John Dunne & Associates Terrent & Homes

HIS HONOUR:

1The Deputy Commissioner of Taxation seeks summary judgment against the defendant in the total sum of $246,850.28 for unpaid tax, penalties and interest.

2Defendant’s counsel, Mr Lim, sought an adjournment of the summons in order for the defendant to be represented by a barrister. I refused the adjournment application and proceeded to hear the plaintiff’s summons.

3The defendant’s liability for tax arises from a business he operated in Mildura selling grapes from his farm both locally and overseas. The defendant asserts that, rather than him having a liability for taxation, he was simply acting as a contractor on behalf of another party. He says that, at the time, he was a recent migrant to the country and was unaware that he was responsible for taxation on the payments he made.

4Mr Lim submitted that his client was naive and was simply acting on behalf of a third party. In so far as taxation liabilities were avoided, those liabilities were the responsibility of the other party.

5The plaintiff relies upon taxation assessments. The assessments were made following an audit carried out by officials on behalf of the plaintiff. The defendant says that, in relation to the audit, it involved the officials having a predisposition towards a conclusion that the operations of the defendant were a sham. Therefore, the approach taken by the officials conducting the audit was arguably “maladministration”.

6“Conscious maladministration” is a basis upon which the conclusiveness of an assessment by the Commissioner may be challenged. However, as the High Court said in Federal Commissioner of Taxation v Futuris Corp Ltd (2008) 82 ALJR 1177 at paragraph 60, “Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers, are not lightly to be made or upheld”.

7The proceeding commenced by writ dated 23 April 2014. The defendant’s solicitors have represented him in the proceeding since May 2014. Mr Lim informed me that in about November or December 2014 the solicitors commenced processes by which they sought to obtain pro bono representation by counsel on behalf of the defendant. A necessary step in this process was to make application to Victoria Legal Aid. It was expected that this would be refused in accordance with normal practice.

8The plaintiff’s summons was issued on 21 January 2015. Mr Lim stated that the solicitors had sought to have the proceeding adjourned on a number of occasions. This apparently included the delay of the proceeding itself during 2014. Mr Lim did not specifically inform me as to when, or if, there were discussions with the plaintiff and the other parties, whom the defendant joined to the proceeding, as to whether the plaintiff’s summons itself should be adjourned.

9When the matter was called on for hearing this morning, there was no application for  an adjournment. The application was only articulated by Mr Lim when I specifically asked him whether such an application was made. I raised the matter with him in the context that it appeared the defendant was pursuing an application seeking a review of the assessments by the Commonwealth Administrative Appeals Tribunal (“AAT”). That application had been made out of time and, before it could be proceeded with, leave of the tribunal and/or the consent of the Deputy Commissioner, would be required.

10Mr Lim, in making the application for adjournment, said that his client wished to engage a barrister more experienced in taxation law who would be able to “address the finer points of the law more adequately”. In support of the application, Mr Lim submitted there was an arguable defence based upon the alleged maladministration by the taxation officials. He submitted, in the alternative, that there were matters arising in the third party proceedings which should be determined as a full hearing to ascertain whether persons other than the defendant should have some financial responsibility to pay any amount due to the plaintiff.

11The third parties are two sets of accountants engaged by the defendant and, upon whose instructions, taxation returns had been filed on his behalf. Mr Lim submitted that, unless the defendant had the opportunity to present arguments through an experienced barrister, there was a risk that summary judgment would be entered against the defendant.

12Such a judgment, it was conceded by all parties, would not affect the ability of the defendant to review the assessments at the AAT, if leave were granted by the tribunal to pursue the application for review out of time. Even if the taxation had been paid by the defendant, or if judgment were entered and the judgment sum was then paid by the defendant, the defendant would not lose whatever rights he had to pursue a review of the assessments or, in this case, to seek leave to pursue that application for review.

13I rejected the application for an adjournment without giving reasons at the time. I now give those reasons.

14Firstly, it appeared that the defendant had not promptly made an application to ascertain whether pro bono counsel were available and had not pursued the application without delay. The proceeding has been on foot since April last year. Mr Lim said that it was in November or December 2014 that processes were put in train once it was ascertained what steps were required to apply for the assistance of pro bono counsel.

15In early January this year, Mr Lim said application was made to Victoria Legal Aid for assistance. It is not clear what further steps were taken prior to the issue of the plaintiff’s summons on 21 January 2015, which apparently was sent by post to the defendant’s solicitors the following day. It also appears that the defendant has engaged solicitors, other than Mr Lim’s firm, to act on his behalf in relation to the application to the AAT. Mr Lim stated that the solicitor in that matter was acting on a no-win no-fee basis, but he was unable to inform me as to the specific basis upon which the application for review of the assessment would be made.

16Mr Lim prepared and filed an affidavit sworn by his client in opposition to summary judgment, and filed comprehensive written submissions, dated 13 February 2015. Accordingly, the defendant has had the benefit of both the services of Mr Lim’s firm and the solicitors who are pursuing the AAT application and who apparently have expertise in taxation matters.

17In the hearing today, Mr Lim relied upon the issue of the alleged maladministration of the taxation officials, although this matter was not dealt with in any detail in his written submissions. Mr Lim, in my judgement, appeared to be familiar with the relevant legal principles and could relate them to the facts upon which the defendant relied.

18I considered, in the circumstances, that it was unlikely any significant prejudice would arise if the matter were not adjourned to enable the defendant to complete the process of seeking pro bono counsel. There is no guarantee that such an application would be successful or that, if counsel were assigned, counsel would have any more expertise in the area of taxation law than Mr Lim or would be better able to articulate the argument.

19The issues of prejudice raised by Mr Lim were basically that if judgment were entered against the defendant today and execution were levied against him, that to meet the judgment it would be necessary for him to sell his home. If he were later to be successful in his application for the review of the assessments in the AAT, he would have suffered considerable prejudice by having been forced to sell his home.

20Further, if the matter were to proceed to a full hearing, the third party proceeding would be determined and it would be possible for the defendant to obtain any contribution to which he might be entitled from his former accountants. Until the third party proceedings were concluded, any judgment against him would need to be met from his own resources.

21The critical matter for determination in the present application is whether the matters of defence raised by the defendant have a real prospect of success or can simply be regarded as “fanciful”, and secondly whether it would be unfair to the defendant for the present application to proceed without a full trial which would also determine the liability of the third parties.

22I consider that in the circumstances of the delay in pursuing the processes for the engagement of the pro bono counsel, and in seeking an adjournment of the plaintiff’s  summons, it is appropriate for me to refuse the adjournment application and to proceed with the plaintiff’s summons.

23I do not consider that this is a matter where there is a basis for ignoring the conclusiveness of the assessments which form the basis for the defendants taxation liability. I do not consider that there is any factual basis for concluding that the taxation officials’ approached the audit with a predisposition to make a finding that the transactions were “sham”, or as Mr Lim suggests, “to find a convenient scapegoat”. There is nothing in the evidence which would support a finding that the officials deliberately disregarded the scope of their obligations or the powers that they exercised.

24I consider that in the present case I am bound by the conclusiveness of the assessments. Further, there is nothing in the affidavit material filed by the defendant which displaces the evidence which has been established, prima facie, by the certificates filed on this application. I accept, however, if the defendant were to succeed in a review of the assessment and, in the meantime was forced to sell his house to meet any judgment that might be entered by the court today, it could be said that a significant prejudice would be suffered by him.

25The taxation liability which arises here relates to actions which occurred many years ago. The amended assessments which are sued upon were issued on 10 December 2012. The defendant had the option to pursue a review of those assessments at a much earlier date, or once the time limit had expired, to apply for leave to pursue the review out of time. Further, there is no material before me which demonstrates that the entry of the judgment today will result in the judgment being enforced or the defendant being required to sell his home. In any event, I consider that these are not matters which should cause me to exercise the discretion pursuant to the Civil Procedure Act 2010 to allow this matter to proceed to trial.

26Each of the third parties who were joined to the proceeding by the defendant have appeared before me today. Both have expressed concern at the fact that the proceeding against their clients has been put on hold for some months whilst the issue of the liability of the defendant to the plaintiff has been pursued. Neither third party submitted to me that there was anything in the plaintiff’s material which would entitle the defendant to avoid judgment being entered against him. Both were well aware that the entry of judgment against the defendant would not avoid the third party proceedings being determined by the court at a later time. In fact, both third parties urged me that whatever the result of the present application by the plaintiff, the third party proceedings should be fixed for trial and interlocutory orders made, so that the position of these parties could be determined as soon as possible.

27In the circumstances, the appropriate orders to make are as follows:

1. Judgment for the plaintiff against the defendant that the defendant pay to the plaintiff $246,850.28.

2. The defendant must pay the plaintiff’s costs of the proceeding, including any reserved costs and the costs of the plaintiff’s summons dated 21 January 2015 and of the hearing today, to be assessed by the Costs Court on a standard basis in default of agreement.

3. The Directions Hearing fixed for 5 March 2015 is vacated.

28It will be necessary for directions to be made fixing the third party proceedings for hearing and setting an interlocutory timetable.

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Certificate

I certify that these 5 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 19 February 2015 and revised on 25 February 2015.

Dated:      25 February 2015

Associate to His Honour Judge Anderson